MERS, the Mortgage Electronic Registration Systems, was the creation of a mortgage industry beset by a tremendous spike in the rate at which mortgage assets were being passed around on the secondary market in an effort to reap the benefits of securitization. More transfers meant more paperwork, more trips to an increasingly backlogged county land office, more assignments and other mortgage-related documents to record, and of course more filing fees. Finally the industry came up with a plan, ingenious on its face, and yet shrouded in just enough mystery to conceal a number of assertions that are, upon closer scrutiny, decidedly untenable within the framework of existing law. Further gaps in the system have allowed unscrupulous individuals to play fast and loose with the foreclosure process, and although MERS has taken steps to prevent such mischief in the future the damage already done is of potentially staggering proportion.

The mortgage industry had a number of objectives, a salient of which was the creation of a privately run, electronic database that would be far more efficient and cost-effective in tracking the beneficial interests in mortgage loans, servicing rights, and warehouse loans than the traditional system of county recording offices. With today’s information technology this proved to be a challenging but nonetheless straightforward undertaking. But there was another objective as well, one that was far more ambitions—and problematic: to design a system that would allow successive owners of a mortgage loan to avoid the time-consuming and costly process of having to run to the local land office to file the necessary paperwork every time a transfer of the mortgage took place. It is in the methodology by which this latter objective would be accomplished that the intrigue begins.

The idea was for MERS to be set up as a member organization the members of which would all individually agree to name MERS as the mortgagee of record in the local land office. MERS would then track the mortgage loan electronically through its database and, because of the agreement with its members, would remain the mortgagee of record at the local land office. Thus the only time an assignment would be recorded would be if the mortgage loan were transferred out of the MERS system or the actual owner of the mortgage were planning to foreclose in its own name. This would not only save time and money but add liquidity to the secondary market as well, thereby making mortgage assets more attractive to investors. Simply put, the goal was to enable MERS’s designation as mortgagee in the public records to survive and persist in spite of multiple transfers of the underlying economic obligation on the secondary market.